The Washington Post has been doing a pretty good job of chronicling the ObamaCare follies lately. Here are three from the past week or so.
Strange Bedfellows. The first is by Sarah Kliff about how the tobacco industry and the American Cancer Society have joined forces to call for the overthrow of the tobacco user surcharge of 50%. Neither group thinks that smokers should be punished, the tobacco industry for obvious reasons and the Cancer Society because the surcharge will deter smokes from getting coverage at all. A spokesman for the group is quoted as saying, “We’re anti-smoking, not anti-smoker.” (Coulda fooled me.)
The article reports −
One analysis, prepared by the nonpartisan Institute for Health Policy Solutions, estimated that the tobacco surcharge could cause a low-income individual’s annual premiums to jump from $708 to $3,308.
This is because the premium subsidy is not allowed to offset the tobacco surcharge, so the individual is required to pay the full extra charge of 50% (or more) of the premium.
The groups will be working at the state level. States are allowed to forbid the rate-up for tobacco users and five states prohibited these add-ons even before the ACA.
Risk Pools Out of Money. N.C. Aizenman reports that the federal high-risk pools have run out of money one year before they were supposed to. So, they have stopped accepting new applicants even though only 100,000 are enrolled — far short of the 375,000 CMS predicted would be enrolled by the end of 2010. (See an earlier post at this blog.) Apparently, the people who enrolled are far sicker than expected. Which begs the question — how were the expectations derived? Answer — they were not. Congress simply picked a nice round number ($5 billion) as an appropriation with absolutely no research behind it.
Rate Shock for Young Adults. N.C. Aizenman also reports on how expensive coverage is about to get for young people. She writes −
Many young, healthy Americans could soon see a jump in their health insurance costs, and insurance companies are saying: It’s not our fault.
She attributes this to richer benefits than most currently buy, the requirement to accept all applicants, and the limits on age-based rating. But, she says, supporters of the law downplay the problem since many will have their premiums subsidized. She quotes Jonathan Gruber as saying −
The typical case I’m looking at is that roughly two-thirds of people are better off, once you factor in the tax subsidies, and one-third of them are worse off. You’re only worse off if you’re young and not poor. And “worse off” isn’t even the right word to use, because you’re still getting more generous insurance than you were before.
Mr. Gruber dismisses the idea that very many will refuse to purchase coverage because he thinks their premium payment will be around $1,600 to $2,000 a year and the tax penalty will be $700 for not participating.
Couple of problems with all this −
- The article understates the real problem, which is that carriers who choose to participate in the exchanges will have absolutely no idea what kind of risks they will be getting. The risk profile could be average or it could be very high. Without being allowed to ask medical questions, they can’t possibly know. So they will have to assume the worst. That means first-year premiums will be extremely high. If the experience is more favorable they can rebate some of the unneeded money. But if they rate below the potential risk there is no way they can recoup their losses.
- Subsidizing the paid premium does nothing to mitigate the underlying cost. It simply means it is being paid for by taxpayers rather than by the insured.
- Gruber’s estimate of paid premiums as low as $1,600 per year seems unrealistic, even with subsidies.
- The tax penalty will apply solely to people who pay income taxes, which 50% of the population does not. The currently uninsured tend to be low income so surely are not subject to income taxes. But even if they are, the tax penalty can be collected solely by seizing refunds. There will be a strong incentive for people to lower withholding to avoid refunds. (This may also have an effect on Federal revenues as people stop giving the government interest-free loans during the year.)
So, once again, the likelihood is that very few people, especially young healthy people, will bother enrolling and paying money for something they don’t think they will need. This means the risk profile of people in the exchanges will be very high and so will premiums. We have seen this over and over again in the states that adopted community rating and guaranteed issue. Having a feeble mandate will not alter reality.